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RNS

Final Results

Released 07:00 19-Jun-2019

RNS Number : 6773C
Immunodiagnostic Systems Hldgs PLC
19 June 2019
 

19 June 2019

Immunodiagnostic Systems Holdings PLC

Final Results for year ended 31 March 2019

highlights 2019

 

£m

2019

2018

% Change

% Change LFL*

Group Revenue

38.5

37.9

1%

1%






Automated Business Revenue

22.6

22.9

-1%

-1%

25-OH Vitamin D

5.5

6.3

-12%

-13%

Other Speciality - IDS

13.7

13.6

1%

1%

Other Speciality - Partners

1.3

1.0

32%

31%

Instrument Sales and Service

2.0

2.0

3%

2%






Manual Business Revenues

12.3

12.4

0%

-1%






Technology Business Revenue

3.6

2.7

31%

32%

Royalty Income

0.0

0.2

-80%

-80%

Technology Income

3.5

2.5

39%

40%






Adjusted** EBITDA

4.8

6.0

-20%

-20%

Profit from Operations

0.4

0.9

-55%


Earnings per Share

2.7p

4.2p

-36%







Free Cash flow to Equity***

1.2

(1.4)

184%


Closing Cash and Cash Equivalents

27.7

28.5

-3%


 

The table above presents a number of alternative performance measures which the Directors believe more accurately reflect the underlying performance of the business.

 

*    Like for like ('LFL') numbers have been adjusted to remove the impact of foreign exchange movements in the year by restating the FY2018 performance using the exchange rates during FY2019.

**  Before exceptional income of £0.1m (2018: cost of £0.5m) - see reconciliation in Financial and Operations Review.

*** See reconciliation in Financial and Operations Review.

 

Operational summary

•    Our target of returning the Group to LFL revenue growth for the first time since FY2014 was met. Group revenue increased by 1% to £38.5m on a LFL basis.

•    We also reached our goal of adding at least 120 instruments. Total gross instrument additions reached 127 (2018: 103).

-   Placements in our direct markets were 37 (2018: 34). Returns were higher than we would have liked at 24 (2018: 25), these were concentrated in our US region. As a result, net placements in our direct markets increased slightly to 13 (2018: 9).

-   Instrument sales to distributors were 47 (2018: 36).

-   Instrument sales to OEM customers were 43 (2018: 33).

•    Rebuilding of our European sales team was completed during the year and this team achieved strong results during Q4.

•    Margins have been adversely impacted by the change in sales mix whereby greater levels of sales in lower-margin distribution territories reduced the Group's average gross margin. 

•    We were unable to release any new in-house developed assays during the year. IDS now offer a portfolio of 135 IDS branded assays with a CE mark, 22 of which are in-house developments. In the US the number of assays offered remains unchanged at 10.

•    One new OEM partnership was signed during the year, and good progress was made in commercialising our existing partnerships.

Jaap Stuut, CEO of IDS, commented:

 "We met our target of returning the Group to revenue growth, with revenues increasing 1%. Additionally, we placed or sold 127 instruments, compared to 103 in the prior year. Our gross margin declined year on year due to a sales mix swing towards lower margin distribution territories.  We built good momentum towards the end of the financial year, and our objective will be to carry this forward into the next".

 Annual report

The annual report will be sent to shareholders shortly and will also be available at the registered office of Immunodiagnostic Systems Holdings PLC at: 10 Didcot Way, Boldon Business Park, Boldon, Tyne and Wear NE35 9PD. It will be made available on the Company's website at: www.idsplc.com.

Notes:

Immunodiagnostic Systems Holdings plc ("IDS", "the Group" or "the Company"), is a specialist in-vitro diagnostic solution provider to the clinical laboratory market and producer of manual and automated diagnostic testing kits and instruments for the clinical and research markets.

For further information:

Immunodiagnostic Systems Holdings PLC

Tel : +44 (0)191 519 0660

Jaap Stuut, CEO

Paul Martin, Finance Director

 




Peel Hunt LLP (Nominated Adviser and Broker)

Tel : +44 (0)20 7418 8900

James Steel, Oliver Jackson


 

Chairman's Statement

 

1.  Introduction

For IDS, FY2019 was a year of stabilisation as Group revenue saw growth of 1% on a like-for-like ('LFL') basis. Thus, the Group met its stated target of returning a like-for-like revenue growth for the first time since FY2014.

 

Our share price, however, did not reflect this outcome; it dropped by 21%, from £2.21 at 31 March 2018 to £1.75 at 31 March 2019.

 

Below the surface of our business, we continued to work on areas of numerous aspects to improve performance, mainly in the areas of HR/Corporate Culture. The trigger for this prioritisation was a review by the Board on the following:

 

a)  The main topic was an intensified effort to effectively change our culture: The Executive Management Team spent significant time and resources to get commitment from all of our managers to accept personal responsibility and accountability. Whilst this may sound obvious, we had learned over the last few years that Board decisions did not get executed because the managers below Board level did not see an obligation to deliver; these decisions were seen as suggestions, but not as 'must reach' goals.

 

b)  Secondly, we worked on strengthening the talent pool in our Company. During the financial year we were able to make several new hires which definitely raised the average ability of our team. At the same time we continued to train our staff in different groups, tendering to their specific training requirements. The key focus was developing our leaders through extensive practical workshops, providing tailored coaching programmes, whilst identifying our key talent gaps. Conversely, we lost some senior staff who did not see a role in a company moving from a largely scientific to a more business-minded culture.

 

c)  The third effort worth mentioning in this summary of the year is a continued effort by the Executive Management Team to establish efficient processes in all areas of our activities. They continue to come across processes which are either not set up with a strong business sense or there is a lack of compliance in following them. This lack of efficient processes is a major factor explaining the gap in profitability we have versus our peers. The way to close the gap will be process by process - and we will do it.

 

Jaap will give you more background on these three top priorities in his CEO's Report.

 

Thus FY2019 was yet another year in which we worked on establishing solid foundations for the business. The conclusion one has to draw from this observation is that our efforts in the past five years were focused too much on firefighting and quick fixes. My colleagues have taken a more balanced view and argue that it takes several iterations until one gets to the root causes of problems. In any case, I can assure you that the Board is now discussing at a level of operational detail and a wealth of data and facts which will assure a better transmission from the boardroom to execution/delivery and finally the financial numbers achieved.

 

2.  Board composition

2.1 Executive team

There are no changes in our Executive Team: Jaap continues to fill his Chief Executive Officer shoes well and he has delivered on his key promise to turn the shrinking business into slight growth. Thus few words are needed and the number is the final outcome of hard work on many fronts.

 

Jaap could not have achieved this goal without the support of Paul Martin, our Group Finance Director. Paul has spent a significant amount of his time taking on operations responsibilities, and in hindsight the decision for Paul to head Operations was correct - it has allowed Jaap to spend more than 50% of his time in the field.

 

2.2 Non-executives

As I announced in last year's Chairman's Statement, Roland Sackers and Till Campe stepped down from the Board on 30 June 2018. I would like to thank Roland and Till for their contributions to IDS. As a result of Roland's departure, Peter Williamson has taken over as Chair of the Audit Committee, a role he has held for a number of PE backed businesses. As noted earlier, I believe the new streamlined Board has worked efficiently and believe the composition is more suitable for a company of IDS's size and position.

 

3.  Key Performance Indicators ('KPIs') in the automated In-Vitro Diagnostics ('IVD') business

Our core business of automated IVD is rather straightforward and requires concentration on a few KPIs. I would like to discuss these below.

 

3.1 New assay launches

During FY2019, disappointingly we were not able to release any new endocrinology assays due to the development process taking longer than anticipated. The assays which were targeted for release in the second half of the year are now expected to be released in FY2020. The main reason is that due to regulatory and other requirements we had to re-work several of the existing assays utilising our Research & Development capacity which would have otherwise focused on new product development.

 

At the end of FY2019 the Company offers 135 IDS branded assays with a CE mark, 22 of which are in-house developments. In the US, the number of assays offered remains unchanged at ten. We expect the next launches of FDA-approved assays during FY2020.

 

 

3.2 Instrument placements and sales

3.2.1 Direct sales territories

Our revenue model in the automated IVD business is based on an installed base with each installed device generating recurring revenues. In order to reach critical mass in the automated IVD business we need to increase the number of installations. The KPIs used for this goal, related to our direct sales territories, are shown in the following tables:

 


2015

£000

2016

£000

2017

£000

2018

£000

2019

£000

Gross instrument placements

54

31

40

34

37

Instrument returns

(40)

(43)

(24)

(25)

(24)

Net instrument placements

14

(12)

16

9

13

 

Compared to FY2018, performance improved slightly. The improvement was mainly driven by our European business. Conversely, the US is suffering from a lack of assay menu which we need to attract new users.

 

3.2.2 Instrument sales via our distributor organisation

In the last Annual Report I told you that we assigned the responsibility for this business area to a manager who has been with us for many years. We have increased the size of this team to lower the administrative burden on this individual. Freeing him from these tasks has given him the chance to show his entrepreneurial talent. In FY2019 he and his team sold 47 analysers to our distributors, up from 36 in FY2018. I am hopeful that there is more to come in the year ahead.

 

3.2.3 Total instrument placements/sales

In total we placed or sold 127 iSYS instruments in FY2019 (including those through our OEM business), up from 103 in FY2018. These are gross placements/sales, which have to be netted off against returns which I outlined in 3.2.1.

 

3.2.4 Financial performance

Revenue of £22.6m (2018: £22.9m) translated into EBITDA (pre-exceptional earnings before interest, tax, depreciation and amortisation) of £1.9m (2018: £3.1m) representing an EBITDA margin of approximately 8% (2018: 14%).

 

4.  Technology business unit

In our Technology business unit we place instruments to other IVD companies who have chosen to source their instrument from us, but will combine it with content (i.e. assays) they have developed themselves. These instruments will carry the label of the OEM partner.

 

In FY2019 we shipped a total of 43 (2018: 33) instruments to our OEM partners.

 

Revenue improved to £3.6m (2018: £2.7m) on the back of more deliveries of instruments and ancillaries to our largest OEM partner. EBITDA in the business unit improved to £0.1m (2018: £nil).

 

5.  Manual business unit

During the year our recently formed Manual business unit succeeded in their goal of stabilising the business, on a LFL basis, revenue declined by 1%. This is encouraging as the poor performance of this business unit, which has declined on average 15% over the previous five years, has significantly dragged down the results of the Group as a whole.

 

Revenue of £12.3m (2018: £12.4m) translated into EBITDA of £2.8m (2018: £2.9m) representing an EBITDA margin of 22% (2018: 23%).

 

 

6. Corporate development

6.1 Acquisitions

In last year's Chairman's Statement, I noted that in order to reach the critical size required in the automated IVD business, we would target to undertake a number of acquisitions. Our acquisition selection criteria are organisations with:

 

a)  High quality proprietary antibodies/assays;

b)  A strong franchise in an indication area - e.g. significant market position and key opinion leaders' network;

c)  An experienced management team; and

d) A price which will allow for an attractive return on the capital employed.

 

In FY2019, as in FY2018, we had discussions with several companies in the manual immunoassay business. We did not close a deal, however a number of discussions are ongoing.

 

6.2 Partnerships

In addition to acquisitions, IDS pursue an approach to agree partnership deals with companies that have a strong manual assay portfolio whereby these partners undertake the automation of their assays for our systems.
The commercialisation of these automated assays can be structured via co-marketing deals, pure licensing deals or any other variant. The revenue from these deals is recognised within our OEM business unit, unless we have secured distribution rights for resulting assays with the partners, in which case the revenue is recognised in our automated business unit.

 

At the start of the year we had two such partnerships and added one further towards the end of FY2019.

 

Combining our own assays with those automated by our partners IDS now has a total portfolio of 135 assays across several indication areas:

 

Indication area

Assays available
with CE mark

Speciality endocrinology

22

Infectious disease

23

Autoimmune

29

Allergy

60

Total portfolio

134

 

This makes us an attractive partner for automation in a much larger target group of laboratories. The number of assays defines the breadth of our offering, but what we still have to build upon is the required depth in the new indication areas, in particular application know-how, a network of key opinion leaders and medical service.

 

Without this depth, laboratories will be unlikely to place our instruments as such competence is a key requirement in the decision-making of laboratories when choosing an instrument supplier. Conversely, if we manage to build up this required depth we should see an increase in the number of new instruments placed.

 

7. Talent and people management

While I have traditionally made comments in this area, my colleague Nicola Mitton outlines our activities in the Talent and People Management Report of the Annual Report and Accounts 2019.

 

8.  Dividend and share buybacks

On 30 August 2018, IDS announced that following unsolicited shareholder interest in expanding the existing share buyback programme, the IDS Board instructed Peel Hunt LLP to acquire up to a further 1,000,000 Ordinary Shares of 2p each which amounts to 3.4% of the 29.4 million Ordinary Shares in issue.


By 31 March 2019 we had proceeded and bought back 666,078 shares (2018: 53,781 shares), which are currently held in treasury. The purpose of the programme is to reduce the capital of the Company and to meet future obligations under the IDS Co-Investment Share Option Plan.

 

Our stated dividend policy is to pay out 25-30% of adjusted basic EPS as dividends. Adjusted basic EPS in FY2019 was 2.4p (2018: 5.7p). Thus, the Board proposes a dividend of 0.7p (2018: 1.7p) - implying a pay-out ratio of 29% (2018: 30%).

 

9.  Employees

I would like to thank all of our staff for their effort and commitment in the last year. We will continue to need you and your commitment to make IDS a company which will be a stronger and a more successful competitor going forward. In FY2019 you showed that being led by an Executive team which sets clear goals, supports you in reaching them and treats you with respect can change a negative momentum for many years to positive. I hope you have the same feeling of pride when looking back to the last 12 months.

 

 

10.   Outlook

FY2019 was the first year after many in which we returned to slight growth. We also improved several KPIs which suggest positive momentum (e.g. placements) which will become fully effective next financial year. Furthermore, beyond all the numbers, we worked on 'fixing the engine' - improving the transmission mechanism to make Board decisions happen.

 

I have said numerous times that I felt we had fixed so much that there could not be much left. Each year has made me admit that there is so much more to do, and there is still a long road to reach best practice.

 

What has not changed, though, is that I remain confident that IDS has a good future; the automated part of the IDS business is a razor/razorblade-type business with recurring revenues at a very predictable rate. These have always been businesses with outstanding profitability and returns to shareholders and the results achieved by our competitors confirm this.

 

Dr Burkhard Wittek

Chairman

 

CEO's  Report

 

Overview

During FY2019, total Group revenues increased by 1% on aLFL basis, mainly due to higher revenues in our Technology business unit. Overall, we achieved revenue growth thanks to a very strong Q4, where I was pleased to see that everyone in the IDS team put in significant effort to ensure we met our objective of returning to LFL growth. Overall, we shipped a total of 127 (2018: 103) analysers to customers - an increase of 23% year-on-year, and in excess of our target of 120. I would like to thank all staff at IDS for their efforts and going the extra mile in achieving this.

 

Encouragingly we stabilised our Manual business after many years of significant decline by focusing on our current distribution network and signing new distribution partnerships. We also achieved a strong growth within our Technology business. Disappointingly, our Automated business declined slightly due to growth in most regions being offset by a shortfall in the US.

 

We made no changes to our Executive Management Team in the year but made changes via key managerial hires with the goal of improving the breadth of talent with a focus on our customer-facing teams. Furthermore, a strong focus on IDS culture and values was a core theme for the year.

 

Our strong performance at the end of the financial year was encouraging. My main challenge looking forward is to maintain this momentum into FY2020 to ensure we accelerate our rate of revenue growth. We will intensify our efforts in generating new business and reducing our costs. Furthermore, during FY2020 we also need to be more successful within our internal research and development function and make sure we release at least two new assays and obtain regulatory approval for a further two assays in the US. Changes made to our research and development processes and regulatory approval process have created the prerequisites to achieve this.

 

1. Automated business unit

1.1 Business segment revenue

 


2019
£000

2018
LFL

£000

 

2018

£000

LFL
change

%

 

Change

%

25-OH Vitamin D

5,537

6,637

6,322

-13%

-12%

Speciality - IDS

13,737

13,541

13,578

1%

1%

Speciality - Partners

1,332

1,019

1,012

31%

32%

Instrument Sales and Service

2,029

1,995

1,964

2%

3%

Total

22,635

22,892

22,876

-1%

-1%

 

 

In FY2019, automated business revenues declined by 1% LFL. This business unit now accounts for 59% (FY2018: 60%) of Group revenues.

 

The LFL decline in 25-OH Vitamin D sales weighed heavily on this business and unfortunately more than offset the growth we saw

in all other areas of the business unit. This decline was mainly driven in the US, where we experienced almost two thirds of our total returned instruments. The decline continues to be attributed to laboratories transferring this assay to high throughput workhorse analysers and our strategy to mitigate will be twofold. Firstly, by increasing the effectiveness of our US sales team and secondly by continuing to focus on upselling further assays on Vitamin D centric machines to increase the stickiness of these machines in a laboratory.

 

Speciality - IDS sales have grown by 1% on a LFL basis after a weak first half where we saw a decline of 2%. Performance in the second half of the year was more encouraging, and we expect to see a stronger performance going forward in this revenue stream as a result of the large number of analysers we successfully placed during Q4.

 

Speciality - Partner assays sales mainly comprise sales of our autoimmune panel of assays and have grown 31% on a LFL basis. The combination of the IDS autoimmune portfolio along with the IDS endocrinology products on one analyser is a compelling value proposition to many laboratories. During the year we also secured regulatory approval for our autoimmune product range in our key distribution territories. However, as this happened towards the end of the year, due to our 9-12 months sales cycle there were not significant assays sales, though distributors ordered a number of analysers in anticipation of the roll out of this panel into their markets. Our autoimmune Clinical Application Specialists ('CAS') will increase knowledge and support and enhance sales uptake in direct and distributor countries.

 

Income from Instrument sales and Service has grown 3% year-on-year. The growth in sales of instruments within our distribution territories was offset by lower instrument sales in direct territories, where the majority of machines were placed in the year rather than sold.

 

1.2. Key success factors

1.2.1 Increased endocrinology reagent portfolio

The endocrinology assay menu of IDS remains specialised but lacks some critical assays to offer a complete testing suite for certain indication areas. Thus, we are focused on the completion of our hypertension and fertility/steroids panels.

 

Disappointingly during the year, we were not successful in launching any new endocrinology assays. This was not due to the failure of any ongoing development projects. Rather it was due to these taking longer than anticipated as we make sure that our development process produces appropriate speciality assay performance and generates a complete set of data to enable any new assays to obtain FDA approval and launch in the US.

 

Continued focus on process outcomes and project management by our research and development teams will be intensified.

 

As a result, the number of automated endocrinology assays produced in house remained unchanged year on year, and is summarised below:

 

Regulatory approval

Assays

end of

FY2019

Assays

end of

FY2018

Assays with CE mark

22

22

Assays with FDA approval

10

10

Assays with NMPA approval

4

4

 

In the US our endocrinology menu is clearly sub-critical in size: a lab will only consider going through the effort of placing an additional analyser like ours if it can run at least 20-25 assays. At present we only have a panel of ten assays. As a result, the majority of the instrument returns in the year have been in the US. In the mid-term we believe we can return the US business to growth as we launch new assays in the territory. However, in the short term we will focus our efforts on promoting our Manual assays to offset some of the shortfall in the Automated business.

 

In China we have four assays registered, however, in the year our Vitamin D assay completed evaluation and is now in the submission process with the Chinese regulators ('NMPA').

 

1.2.2 - Additional assay fields

As I set out in last year's Annual Report and explained in the Our Business section, a cornerstone of our revenue growth strategy centres around working with partners to commercialise assays they have developed in fields which are adjacent to endocrinology. A summary of our progress in each of these fields is set out below:

 

Autoimmune and infectious disease: During the year we successfully achieved CE marking for the 53 assays which are manufactured in Italy by our partner Technogenetics. As a result, all of these assays are now available in the IDS brand. Furthermore, we have also successfully registered the autoimmune products in our key distribution territories. The sales team in Europe has been strengthened by the recruitment of specialists in these fields, and consequently we saw year-on-year revenue growth of over 30%.

 

Allergy: The IDS range of Allergy products, which now totals 60 tests, is developed by our partner Omega Diagnostics in Scotland. These products have now all been CE-marked under the IDS brand, and we performed their market launch in March 2019. We expect to see the first sales during FY2020 and will focus on working with our partner to develop the required range of screening tests which are crucial to obtaining more significant short-term commercial traction.

 

Monitoring of biotherapy treatments: In March 2019 we signed a collaboration agreement with Theradiag in France under which they will seek to automate their range of Biotherapy monitoring ELISA assays on the IDS instrument. IDS have also secured the distribution rights to the newly developed automated assays, as well as Theradiag's existing range of ELISA assays in a selected number of territories including Germany, the Nordics and Latin America. I look forward to working with Theradiag on this exciting opportunity moving forwards.

 

1.2.3 Instrument placements

The number of machines installed is a critical KPI, as each machine will generate future recurring assay revenue. The total number of machines placed or sold was 84 (2018: 70), an increase of 20%. This performance is summarised in the table below:

 


2019

2018

Direct - Gross Placements

37

34

Direct - Gross Returns

(24)

(25)

Direct - Net Placements

13

9

Distributor Sales

47

36

Total Gross Placements / Sales

84

70

 

Encouragingly we saw a much-improved performance in our distribution territories where we sold 47 machines, versus 36 in the prior year. As we noted in last year's Annual Report and Accounts 2018, we have dedicated more resources to this revenue channel, and are starting to see the first benefits of this. We expect to continue increasing our focus in this area in FY2020. I would like to thank the team for their focus and dedication in achieving set goals.

 

The average number of assays running on the analysers has continued to increase - moving from 4.7 to 5.1 over the year. This reflects the efforts made by the sales team to upsell additional assays, particularly the new autoimmunity assays which complement our existing endocrinology assays, onto our existing installed base. This increases our return from each analyser and raises the probability of the laboratory retaining the analyser at the end of the contract.

 

Average revenue per direct instrument ('ARPI') was £52,000 (2018: £53,000) per annum, calculated on a rolling 12-month basis. The decrease in ARPI was mainly due to the loss of a few high-volume single assay systems in the Americas, offset by increased revenue from assay upsells.

 

1.2.4 Sales team

As I noted in our half-year report, we focused our attention on enhancing our European sales organisation. During the year we recruited two new managers, with significant IVD experience, to lead our sales teams in France and Germany.

 

Additionally, we recognised that as IDS have historically been an endocrinology focused organisation, we needed to enhance our technical and commercial skills in the new assay fields which we are entering. As a result, during the year we built a new team of clinical application specialists who have specialist experience in these new fields. They visit customers and work jointly with our sales representatives to address the specific technical, clinical and workflow topics to design a tailored answer which meets our customer`s needs. As a result, we managed to place a significant number of machines which will run both endocrinology and autoimmunity assays during Q4.

 

In the US, we continue to struggle to improve automated sales performance, mainly due to the lack of assays in our portfolio. This makes it difficult to recruit and retain a dedicated IVD sales force with experience in the speciality field we are operating. Sales effectiveness will be a key cornerstone for FY2020 for our US sales team. However, we are confident the changes made in our regulatory approval processes will bear fruit in the medium-term and lead to an increase in the assay menu available in the US. The US remains a critical region for IDS's Automated business unit, however there are no short-term fixes to allow us to turnaround the performance of this part of the business.

 

2. Manual business unit

2.1. Business segment revenue

 

 


2019
£000

2018
LFL

£000

 

2018

£000

LFL
change

%

 

Change

%

25-OH Vitamin D

1,061

1,462

1,450

-27%

-27%

Other Speciality - IDS

5,179

4,848

4,845

7%

7%

Other Speciality - Purchased

2,058

1,861

1,851

11%

11%

Diametra

4,024

4,230

4,215

-5%

-5%

Total

12,322

12,401

12,361

-1%

0%

 

 

In FY2019, we successfully met our goal of stabilising the Manual business unit. Sales exhibited a year-on-year fall of 1% LFL, a significant improvement on the historical trend which has seen these revenues decline by an average of 15% per year over the last five years. Manual business unit revenues represent 32% (2018: 33%) of Group revenues. Increased focus on 'getting things done' coupled with improved support to our distributors by enhancing their product knowledge and portfolio management has shown improved results.

 

During the year we successfully reinvigorated and expanded our distribution base and were successful in winning in our direct markets - particularly the US. The underlying business is well placed to return to a moderate level of LFL growth in the future, however, it will be impacted adversely by the loss of distribution rights related to certain third-party products in the short-term. The future of this business unit is a lot brighter now than when I took over the CEO role and I would like to thank the Manual business team for their dedication in strengthening this business unit.

 

2.2. Manual business unit commercial team

FY2019 was the first period in which we have been able to see the full year impact of our recently constituted Manual business commercial team. This team has focused successfully on ensuring the market recognises that IDS is "back in business" as a supplier of high-quality endocrinology ELISA and RIA assay test kits.

 

During the year, the team focused on several areas to improve the commercial performance of the business:

• Reactivating dormant customer accounts;

• Providing better support to our existing distributors to help them successfully sell and market our product range;

• Signing up new distributors in geographical locations where we previously were not represented;

• Negotiating OEM deals, where we provide antibodies or kits to third parties in a "white label" format; and

• Increasing our focus on winning business with research organisations ("RUO").

 

Moving into FY2020 a key focus for the team will be to leverage the new distribution agreements that were negotiated during FY2019 to generate revenue momentum going forward. They will also attempt to gain traction with the ELISA biotherapy monitoring products from Theradiag for which we obtained distribution rights towards the end of FY2019.

 

3. Technology business unit

3.1. Business segment revenue

 

 


2019
£000

2018
LFL

£000

 

2018

£000

LFL
change

%

 

Change

%

Royalty income

35

174

176

-80%

-80%

Technology income

3,521

2,513

2,534

40%

39%

Total

3,556

2,687

2,710

32%

31%

 

 

In FY2019 Technology business unit sales exhibited a LFL year-on-year increase of 32%, and account for 9% (2018: 7%) of Group sales.

 

This growth continues to be driven by large volume orders for analysers by one OEM partner, as they prepare for the commercial launch of their automated solution which is based on a white-label i10 instrument. During FY2019, 43 instruments were delivered to OEM partners, versus 33 in the prior year.

 

Moving into FY2020 we expect revenues in this business unit to remain relatively stable, though they are highly dependent on the successful product launch by one of our OEM partners. In addition, we target the signature of at least one more major OEM deal during FY2020 which would impact revenues in the medium term.

 

4. Culture and values

During the year IDS has progressed in its journey from a scientifically focused organisation to a commercial, customer focused organisation which produces top quality IVD product underpinned by excellent science and services. The best evidence of this was in the strong last quarter, where all employees came together to ensure the Group was able to meet our commercial goal of delivering financial year results which returned us to growth, as well as enabling us to post a 23% increase in the number of analysers placed year-on-year.

 

I have been heavily involved in all the leadership and values workshops held during the year and have been encouraged by the level of engagement and enthusiasm the staff have shown to fix IDS. We will intensify our efforts by embedding our organisation values and goals at all levels of the organisation. I am now continually seeing examples of this, by giving out awards to those who effectively change our culture in turning their day-to-day activities to business results.

 

During FY2020 we will increase our focus on ensuring that all team members have specific objectives which are all aligned to the Group goals of improving revenue, analyser placements and profit. We will support and dedicate our team to hit these objectives in the agreed timeframes - as it is only through this results-orientated approach we will achieve significant success.

 

I would like to thank every employee whose efforts enabled the Group to return to growth. I believe we have good momentum moving into FY2020, where we will target an acceleration in our revenue growth. With close collaboration between sites, functions and individual team members, as well as driving to hit both our organisational and individual team member goals, I believe we will be successful in this aim.

 

Jaap Stuut

Chief Executive

 

Financial and Operations Review

 

1. Profit and loss account overview

During the year, the Group improved revenue by 1% on a LFL basis to £38.5m, mainly as the result of a strong performance in our Technology business. The revenue performances of the Automated and Manual business units were broadly consistent year-on-year.

 

Pre-exceptional earnings before interest, tax, depreciation and amortisation ('EBITDA') decreased to £4.8m (2018: £6.0m).  This was mainly due to a reduction in gross margin to 43% (2018: 47%). The margin drop was mainly due to declines in sales volumes in the high margin direct business in the US being offset by sales in lower margin distribution territories. This was partially offset by the lower operating costs of the Group.

 

Cash and cash equivalents decreased by £0.8m to £27.7m (2018: £28.5m), largely as a result of the share buy-back activity in the year which absorbed £1.4m. Free cash flow to equity, being cashflow before returns to shareholders increased to £1.2m (2018: outflow of £1.4m).

 

 

2. Revenue analysis

Group revenue of £38.5m (2018: £37.9m) increased by £0.6m, or 1% on both a reported and LFL basis.

 

2.1 Revenue by geography

 


2019
£000

2018
£000

LFL
change

Change

Direct sales - US

7,215

7,858

-8%

-8%

Direct sales - Europe

22,416

21,998

2%

2%

Rest of world

8,882

8,091

11%

10%

Group revenue

38,513

37,947

1%

1%

 

 

Our US business suffered a revenue decline of 8% on a LFL basis. This was mainly due to the sub-scale automated assay menu making it difficult to win new business, coupled with the loss of a number of machines dedicated to running only one test. The poor performance in the Automated business unit in the US was offset by growth in the Manual business unit.

 

The European business showed sales growth of 2%. During H1 performance was not as expected due to the Group still being in the process of building our sales and clinical application specialist team in the region. However, H2 performance, once this team was substantially in place, was more satisfactory and we need to maintain this momentum into FY2020.

 

Last but not least, our best regional performance was in Rest of World. This is business which is mainly transacted through our distribution network. The growth was driven by the increased focus on both our Automated and Manual businesses in our distribution territories.

 

3. Costs: overall cost structure/top-down perspective

3.1 Summary income statement




% of revenue

Year ended 31 March

2019
£000

2018 restated £000

2019

2018

Revenue

38,513

37,947

100%

100%

Cost of goods sold

(21,817)

(19,934)

57%

53%

Gross profit

16,696

18,013

43%

47%

Sales & marketing

(9,075)

(9,371)

-24%

-25%

Research & development

(2,444)

(1,677)

-6%

-4%

General & administrative expenses

(4,837)

(5,503)

-13%

-15%

Total operating costs pre-exceptional

(16,356)

(16,551)

-42%

-44%

Exceptional items

89

(515)

0%

-1%

Profit from operations

429

947

1%

2%

Add Back :





Depreciation & amortisation

4,457

4,561

12%

12%

Exceptional items

(89)

515

1%

1%

Adjusted EBITDA

4,797

6,023

12%

16%

 

 

As seen in the table above, we lost four percentage points of gross margin year-on-year. The main drivers were mix-related: highly profitable direct sales US business was replaced by lower-margin distributor business.

 

On the operating costs front, we achieved a slight improvement in our cost ratios in sales and marketing as well as general and administrative costs. But as research & development costs increased (post-capitalisation) the net improvement in our operating costs as a percentage of sales was only one percentage point.

 

Combining these two factors, our adjusted EBITDA dropped from 16% of revenue to 12% year on year.

 

 

3.2 Comparison to peers

I would like to draw your attention to the comparison of our cost structure with those of our direct competitors and comparable peers. For this comparison exercise we have selected:

 

a)  Diasorin - because they are our most direct competitor; and

 

b)  Qiagen is another world-class company in diagnostics, in this case molecular diagnostics.

 

The following table shows the cost structures as a percentage of revenues of these peer companies compared to IDS:

 

Costs as % of revenue

Cost of goods sold

Sales & marketing

Research and development

(gross)

General and

 administrative

IDS

57%

24%

13%

13%

Qiagen

33%

26%

11%

9%

Diasorin

32%

20%

9%

10%

 

While we have succeeded in halting the decline in revenue, our EBITDA lags well behind that of our larger, best in class peers.

 

If we examine the reasons for this, we see that, as set out in the graphs above, IDS has broadly comparable sales and marketing, R&D and general and administrative costs as a percentage of revenue to the likes of Diasorin and Qiagen.

 

However, our gross margin is significantly lower. For example, Diasorin generates gross margin of 68%, and Qiagen 65%, versus IDS's 43%, hence we lose up to 25% points of margin at the gross profit level. As a result, I will focus my analysis of costs below on costs of goods sold ('COGS'), as this is the area we most need to improve.

 

4. Gross profit and gross margin

4.1 Comparing FY2019 with FY2018 financials

Gross profit in the year was £16.7m (2018: £18.0m), a decrease of £1.3m, from the prior year. Gross margin reduced to 43.4% (2018: 47.5%). As noted earlier, the margin drop was mainly due to declines in sales volumes in the high margin direct business in the US being offset by sales in lower margin distribution territories.

 

4.2 Short-term actions: operating performance

As well as being responsible for finance, this was my first full year in charge of the IDS Operations team, which comprises our production, logistics and quality functions.

 

During the year, we focused on several projects, all aimed at our goal of improving our service levels or COGS directly. Experience shows that better service tends to come from better processes and process discipline and this in turn also contributes to lower COGS. Below, find a summary of the projects we ran in the area of COGS and the results of these.

 

4.2.1 Product availability

A major project in the year was improving delivery times and fill rates of orders. Our main action was improving the production planning process for both instrument and assays. We introduced a backlog KPI (orders received but which we could not ship due to stock non-availability) and this metric was improved during the year such that the backlog was close to nil at year end.

 

4.2.2 Product quality

At the start of the year it became clear to me that IDS was experiencing a number of easily avoidable customer complaints which could be reduced through targeted investment in our production equipment. Here we are talking about basic things like badly printed bar codes and leaking vials due to vial caps not being applied correctly. Some targeted investment in new manufacturing equipment solved these issues rapidly, and the level of complaints has reduced by 48%.

 

4.2.3  Scrap rates

In FY2019 we have commenced a number of initiatives to track and reduce the scrap-related material costs in our sites. We succeeded in reducing this significantly in the current year, and in particular production-related scrap reduced by 27%.

 

4.3 Medium-term actions: two major projects

In addition to these short-term actions we have started two projects which will show a contribution in the medium term - beginning in FY2020:

 

a)  We started a pricing analysis, comparing our price level with the competition and taking into account differences in product quality. We hope to identify some sources for price increases from this exercise; and

 

b)  We initiated an external review of our Liège and Pouilly plants to identify areas of improvement.

 

I will report back on the outcomes of these projects in the next Annual Report.

 

 

5. Operating costs

Once all the recognition criteria of IAS38 Intangible Assets related to the capitalisation of product development project costs are met, the relevant costs encompassing instrument and new assay developments are capitalised and amortised over a 10-year period. The total amount of costs capitalised decreased from £2.6m in 2018 to £2.4m in 2019. We review these projects on a periodic basis throughout the financial year and the costs are impaired if a project no longer meets the required criteria.

 

As can be seen in the table in section 3.1, operating costs before exceptional items were £16.4m (2018: £16.6m), a decrease of 1% on a LFL basis.

 

6.  Foreign exchange

In contrast to recent years, movements in foreign exchange rates have not materially impacted the Group results year-on-year, because as shown in the table below the Pound Sterling has been largely constant against the Euro and US Dollar.

 

Average exchange rates

2019

2018

Strengthening

against
Sterling %

Pound Sterling: US Dollar

1.32

1.33

-1%

Pound Sterling: Euro

1.13

1.14

0%

     

In the year 67% (2018: 67%) of the Group's revenues were billed in Euros and 20% (2018: 22%) were billed in US Dollars.

 

7.  Segmental reporting

 


Automated

2019
£000

Manual

2019
£000

 

Technology

2019
£000

Total

2019
£000

Revenue

22,635

12,322

3,556

38,513

Gross profit

10,054

5,584

1,058

16,696

EBITDA

1,898

2,755

144

4,797

EBITDA %

8.4%

22.4%

4.0%

12.5%

 

 


Automated

2018
£000

Manual

2018
£000

 

Technology

2018
£000

Total

2018
£000

Revenue

22,876

12,361

2,710

37,947

Gross profit

11,394

5,690

929

18,013

EBITDA

3,147

2,870

6

6,023

EBITDA %

13.8%

23.2%

0.0%

15.9%

 

 

EBITDA margin in our Automated business reduced to 8.4% from 13.8% in the prior year. This was due to the aforementioned change in the sales mix. In our Manual business the EBITDA margin of 22.4% (2018: 23.2%) was similar to the prior year, while in our Technology business it grew to 4% (2018: 0%) due to the leverage effect higher revenues. 

 

8. Headcount and productivity

8.1 Headcount

An analysis of the Group's headcount, on a FTE basis, is set
out below:

            


31 March
2019

31 March
2018

Operations

127

127

Sales and Marketing

78

78

thereof field sales force

24

23

Research and Development

43

40

General and Administrative

35

36

Total

283

281

 

 

8 .2 Labour productivity

The most appropriate way to measure the overall productivity of IDS is revenue per employee.

 

As can be seen in the chart below, revenue per employee in FY2019 was broadly consistent with FY2018. It lags well below best in class as shown by the corresponding metric for Qiagen and Diasorin.

 

Revenue per employee

2015

£000

2016

£000

2017

£000

2018

£000

2019

£000

IDS

135

117

137

134

137

Qiagen

202

184

214

235

227

Diasorin

202

219

254

295

300

 

NB: Diasorin and Qiagen results are for year ended 31 December 2018. IDS results are for year ended 31 March 2019.

 

9.  Finance expense

Net finance income was £0.4m (2018: £nil). Included within net finance income is a foreign exchange gain
of £0.3m (2018: loss of £0.1m), which arises from the translation of non-Pound Sterling denominated intercompany balances.

 

 

10. Exceptional items

The Group incurred some exceptional items during the current and previous financial year:

 

Year ended 31 March

2019
£000

2018
£000

Restructuring credit/(costs)

89

(515)

Total exceptional credit/(costs)

89

(515)

 

 

In FY2019, there was an exceptional credit of £0.1m due to the reversal of restructuring provisions related to our France and Italy operations which were not utilised.

 

In the prior year, the restructuring costs related to the closure of our Milan and Paris offices plus severance costs for the outgoing CEO, offset by a reversal in an onerous lease provision of £0.2m which was booked to exceptional items in previous years.

 

11. Profit from operations  

Profit from operations ('EBIT') was £0.4m (2018: £0.9m), the decline being mainly due to the loss of gross margin as a result of the revenue mix changes explained earlier.

 

12. Taxation

The tax charge of £0.05m (2018: credit of £0.3m) gives a full-year effective rate of 5.5% (2018: -31.2%). It comprises a current tax credit of £0.2m and a deferred tax charge of £0.2m. The current tax credit arises mainly due to Research & Development tax claims in the UK and France but is partially offset by profits chargeable in overseas territories taxable at a higher rate than UK corporation tax.

 

Total gross tax losses carried forward amount to £20.3m (2018: £20.3m) of which £3.2m (2018: £4.4m) has been recognised as an asset in the balance sheet.

 

13. Earnings per share

Adjusted earnings per share is calculated using profit after tax adjusted to exclude the after-tax effect of exceptional items. Adjusted basic earnings per share are 2.4p (2018: 5.7p). Basic earnings per share are 2.7p (2018: 4.2p).

 

14. Balance sheet and cashflow

14.1 Equity

The Group's shareholders' funds at 31 March 2019 were £55.2m (2018: £56.9m).

 

14.2 Working capital

The Group net working capital was £12.6m at 31 March 2019 (£12.9m at 31 March 2018).

 

The reason behind the decrease in the working capital requirement is largely due to a reduction in the net corporation tax debtor of £0.7m due to large cash receipts relating to Research and Development relief, partially offset by an increase in trade receivables due to strong revenue in the final month of FY2019.

 

An analysis of the key elements of working capital is shown below:

     


31 March
2019

31 March
2018

Trade receivable days

53

55

Inventory days

167

217

Trade payable days

(32)

(37)

 

 

 

14.3 Cash flow summary

A summary of the Group's cash flow statement for the year is shown below:

 

     


2019

£000

2018

£000

Profit before tax

842

935

Depreciation and amortisation

4,457

4,561

Income taxes received /(paid)

838

(140)

Other adjusting items

(589)

(476)

Movements in working capital

232

(2,364)

Cash generated from operating activities

5,780

2,516

Cash used in investing activities

(4,426)

(3,870)

Cash used in financing activities

(2,019)

(1,406)

Net decrease in cash and cash equivalents

(665)

(2,760)




Add back



Share buy back

1,358

147

Dividends

500

1,177

Free cash flow to equity

1,193

(1,436)

 

 

Cash generated from operating activities improved to £5.8m, versus £2.5m in the previous year, driven by significantly lower working capital outflows. As a result, free cash flow to equity improved to £1.2m, from an outflow of £1.4m in the prior year.

 

15. Dividend and share buy back

During the year, after a request from a major shareholder to help in disposing of a block of shares, the Group extended its share buyback programme via a book build process announced on 30 August 2018. As a result, the Group purchased 612,297 shares at an average cost of £2.20p per share (plus commission of £10,000), thus total consideration of £1.4m. This brings the total number of shares held in treasury to 666,078, around 2% of the share capital.

 

The Group has a policy to pay out between 25% to 30% of its adjusted earnings per share as a dividend. In FY2019 adjusted earnings per share was 2.4p (2018: 5.7p) thus the Board is proposing a dividend for the year of 0.7p (2018: 1.7p) subject to the approval of shareholders at the Annual General Meeting on 25 July 2019. If approved, the dividend will be paid on 16 August 2019 to shareholders on the register at the close of business on 19 July 2019.

 

16. Brexit risk

In common with most UK businesses, we put significant effort into preparing for a no-deal Brexit on 29 March 2019. Our focus has been on ensuring we could continue to trade effectively over any 'hard Brexit' date.

 

Our preparations included:

 

•    Ensuring we had sufficient stocks of raw materials to ensure continuity of manufacture;

•    Transferring finished goods to the appropriate intermediary inventory hub location to mitigate any delays at the
UK/EU border;

•    Assessment of the change in VAT treatment of goods sold from the UK to EU customers and raw materials purchased for use in production at the UK site; and

•    Preparing all the paperwork to register any products with a CE mark registered in the UK to an appropriate EU based regulatory agency.

 

We do not believe any devaluation in Pounds Sterling will pose a material risk to the business, as this tends to improve the reported profitability of the Group.

 

While the deadline for Brexit has been delayed, we are ready to re-enact our hard Brexit implementation plan if required.

 

17. Change of auditors

As a result of a competitive tendering process led by the IDS Audit Committee, we changed our auditors from Ernst & Young LLP to PricewaterhouseCoopers LLP. On behalf of the IDS finance teams I would like to thank Ernst & Young LLP for their assistance and high levels of service, and to PricewaterhouseCoopers LLP for a smooth transition to a new audit team.

 

Paul Martin

Group Finance Director

18 June 2019



 

Consolidated Income Statement for the year ended 31 March 2019

 


Notes


2019

£000


2018

£000

Revenue

1


38,513


37,947

Cost of sales



(21,817)


(19,934)

Gross profit



16,696


18,013

Sales and marketing costs



(9,075)


(9,371)

Research and development costs



(2,444)


(1,677)

General and administrative expenses



(4,837)


(5,503)

Operating costs pre-exceptional items



(16,356)


(16,551)

Exceptional items






Restructuring credit/(costs)



89


(515)

Total exceptional items



89


(515)

Operating costs



(16,267)


(17,066)

Profit from operations

2


429


947

Finance income



495


128

Finance costs



(82)


(140)

Profit before tax



842


935

Income tax (charge)/income

3


(46)


292

Profit for the year attributable to owners of the parent



796


1,227







Earnings per share






Adjusted basic

4


2.4p


5.7p

Adjusted diluted

4


2.4p


5.7p

Basic

4


2.7p


4.2p

Diluted

4


2.7p


4.2p

 

 

Consolidated Statement of Comprehensive Income for the year ended 31 March 2019

 


2019

£000

2018

£000

Profit for the year

796

1,227

Other comprehensive (expense)/income to be reclassified to profit or loss in subsequent periods



Currency translation differences

(505)

147




Other comprehensive (expense)/ income to be reclassified to profit or loss in subsequent periods,
before tax

(505)

147

Tax relating to other comprehensive income to be reclassified to profit or loss in subsequent periods

-

-




Other comprehensive expense not to be reclassified to profit or loss in subsequent periods



Remeasurement of defined benefit plan

(40)

(3)

Other comprehensive expense not to be reclassified to profit or loss in subsequent periods, before tax

(40)

(3)

Tax relating to other comprehensive expense not to be reclassified to profit or loss in subsequent periods

14

-

Other comprehensive (expense)/income net of tax

(531)

144

Total comprehensive income for the year attributable to owners of the parent

265

1,371

 

Consolidated balance sheet at 31 March 2019

 

 

 



2019

£000

2018
Restated

£000

Assets




Non-current assets




Property, plant and equipment


6,852

7,467

Other intangible assets


11,177

10,993

Deferred tax assets


70

377

Other non-current assets


283

351



18,382

19,188

Current assets




Inventories


7,819

8,378

Contract assets


380

371

Trade and other receivables


8,958

7,998

Income tax receivable


2,667

3,073

Cash and cash equivalents


27,713

28,533



47,537

48,353

Total assets


65,919

67,541





Liabilities




Current liabilities




Short-term portion of long-term borrowings


82

80

Trade and other payables


6,511

6,670

Contract liabilities


278

116

Income tax payable


369

58

Provisions


46

243

Government grants


33

97



7,319

7,264

Net current assets


40,218

41,089





Non-current liabilities




Long-term portion of long-term borrowings


1,092

1,201

Employee benefit obligations


363

358

Provisions


846

750

Deferred tax liabilities


996

1,096



3,297

3,405

Total liabilities


10,616

10,669

Net assets


55,303

56,872





Called up share capital


589

589

Share premium account


32,345

32,345

Other reserves


4,660

5,165

Retained earnings


17,709

18,773

Equity attributable to owners of the parent


55,303

56,872

 

Consolidated statement of cash flows for the year ended 31 March 2019

 



2019

£000

2018

£000

Operating activities




Cash generated from operations


5,089

3,713

Cash outflow related to exceptional costs


(147)

(1,057)

Income taxes received/(paid)


838

(140)

Net cash from operating activities


5,780

2,516





Investing activities




Purchases of other intangible assets


(2,492)

(2,639)

Purchases of property, plant and equipment


(2,122)

(1,734)

Net proceeds from disposals of property, plant and equipment


26

375

Interest received


162

128

Net cash used by investing activities


(4,426)

(3,870)





Financing activities




Proceeds from issue of shares for cash


-

83

Repayments of borrowings


(79)

(86)

Interest paid


(82)

(79)

Dividends paid


(500)

(1,177)

Purchase of own shares


(1,358)

(147)

Net cash used by financing activities


(2,019)

(1,406)

Net increase in cash and cash equivalents


(665)

(2,760)

Effect of exchange rate differences


(155)

(202)

Cash and cash equivalents at beginning of year


28,533

31,495

Cash and cash equivalents at end of year


27,713

28,533

 



 

Consolidated statement of changes in equity for the year ended 31 March 2019

 


Share

capital

£000

Share

premium

account

£000

Other

reserves

£000

Retained

earnings

£000

Total

£000

At 1 April 2017

588

32,263

5,018

18,863

56,732

Profit for the year

-

-

-

1,227

1,227

Other comprehensive income






Foreign exchange translation differences on foreign currency net investment in subsidiaries

-

-

147

-

147

Remeasurement of defined benefit plan

-

-

-

(3)

(3)

Total comprehensive income

-

-

147

1,224

1,371

Transactions with owners






Share-based payments

-

-

-

10

10

Dividends paid

-

-

-

(1,177)

(1,177)

Shares issued in the year

1

82

-

-

83

Purchase of own shares

-

-

-

(147)

(147)

At 31 March 2018

589

32,345

5,165

18,773

56,872







At 1 April 2018

589

32,345

5,165

18,773

56,872

Profit for the year

-

-

-

796

796

Other comprehensive (expense)/income






Foreign exchange translation differences on foreign currency net investment in subsidiaries

-

-

(505)

-

(505)

Remeasurement of defined benefit plan

-

-

-

(40)

(40)

Tax effect on remeasurement of defined benefit plan

-

-

-

14

14

Total comprehensive (expense)/income

-

-

(505)

770

265

Transactions with owners






Share-based payments

-

-

-

24

24

Dividends paid

-

-

-

(500)

(500)

Purchase of own shares

-

-

-

(1,358)

(1,358)

At 31 March 2019

589

32,345

4,660

17,709

55,303

 



 

Notes to the consolidated financial statements for the year ended 31 March 2019

 

1.  Segmental information

The Group applies IFRS 8 Operating Segments. IFRS 8 provides segmental information for the Group on the basis of information reported internally to the chief operating decision-maker for decision-making purposes. The Group considers that the role of chief operating decision-maker is performed by the Board of Directors.

 

Analysis of revenue is prepared and monitored on a geographical basis due to the organisation of the sales teams as well as by product type. However, earnings on a geographical basis are not considered the most appropriate measure of performance given the differing nature of operations across the different territories.

 


2019

£000

2018

£000

UK (country of domicile)

2,082

1,989

US

7,204

7,861

Germany

8,937

8,474

France

4,421

4,045

Other - distribution territories

15,869

15,578

Total revenues

38,513

37,947

 

 

In prior years, the Group has reported only one segment, being the whole business. Analysis of revenue has always been reported and monitored on the basis of the three segments noted below, however, due to the structure of the business and the financial systems in place, operating profit could not be determined for these segments. As a result of a simplification of the Group and an improvement in systems, IDS is now able to report to profit from operations level for the three segments shown below. This is monitored by the chief operating decision-maker quarterly. Comparatives for FY2018 have been derived on a consistent basis with the results for FY2019.

 

All balance sheet and cash flow information received and reviewed by the Board of Directors is prepared at a Group level.

 


Automated

2019

£000

Manual

2019

£000

Technology

2019

£000

Total

2019

£000

Revenue

22,635

12,322

3,556

38,513

Cost of Sales

(12,581)

(6,738)

(2,498)

(21,817)

Gross profit

10,054

5,584

1,058

16,696

Sales and marketing

(6,920)

(1,761)

(394)

(9,075)

Research and development

(2,333)

-

(111)

(2,444)

General and administrative expenses

(2,947)

(1,456)

(434)

(4,837)

Operating costs pre-exceptional items

(12,200)

(3,217)

(939)

(16,356)

Adjusted EBIT

(2,146)

2,367

119

340

Exceptional items





Restructuring credit




89

Total exceptional items




89

EBIT




429

Finance income




495

Finance costs




(82)

Profit before tax




842

 



 


Automated

2018

£000

Manual

2018

£000

Technology

2018

£000

Total

2018

£000

Revenue

22,876

12,361

2,710

37,947

Cost of Sales

(11,482)

(6,671)

(1,781)

(19,934)

Gross profit

11,394

5,690

929

18,013

Sales and marketing

(7,397)

(1,590)

(384)

(9,371)

Research and development

(1,553)

-

(124)

(1,677)

General and administrative expenses

(3,439)

(1,625)

(439)

(5,503)

Operating costs pre-exceptional items

(12,389)

(3,215)

(947)

(16,551)

Adjusted EBIT

(995)

2,475

(18)

1,462

Exceptional items





Restructuring costs




(515)

Total exceptional items




(515)

EBIT




947

Finance income




128

Finance costs




(140)

Profit before tax




935

 

 

2.  Profit from operations

Profit from operations is stated after charging/(crediting):


2019

£000

2018

£000

Restructuring (credit)/costs

(89)

515

Total exceptional items

(89)

515

Amortisation of other intangible assets

2,270

2,145

Loss on disposal of owned plant, property and equipment

36

44

Depreciation of owned plant, property and equipment

2,053

2,272

Depreciation of assets held under finance leases

134

144

Operating lease costs

746

790

Share-based payments

24

10

Other staff costs

15,606

16,046

Cost of inventories recognised as an expense

7,637

6,220

Write downs of inventories recognised as an expense

799

1,289

Reversal of write down of inventories

-

(227)

Net (gain)/loss on foreign currency translation

(333)

61

Auditor's remuneration (see below)

178

177

 

 

Amounts payable to PricewaterhouseCoopers LLP (2018: Ernst & Young LLP) and their associates in respect of both audit and non-audit services:

 


2019

£000

2018

£000

Audit services PricewaterhouseCoopers LLP



- statutory audit of parent and consolidated accounts

143

-

Audit services Ernst & Young LLP



- statutory audit of parent and consolidated accounts

-

175

- statutory audit of subsidiary accounts

35

-

Actuarial services Ernst & Young LLP

-

2


178

177

 

 

In FY2019, the exceptional credit was due to a £0.1m reversal of restructuring provisions relating to our French and Italian operations which were no longer required.

 

In FY2018, exceptional costs related to the closure of our Milan and Paris offices (£0.6m) and senior management severance (£0.1m) which were partially offset by a reversal in an onerous lease provision which was booked to exceptional in previous years. The reversal was necessary due to the renegotiation with the landlord to exit the lease on one of the two leased buildings in Boldon, UK.

 

3.  Taxation on ordinary activities

a)  Analysis of charge/(credit) in the year

 


2019

£000

2018

£000

Current tax:



UK corporation tax

(480)

(512)

Adjustment in respect of prior periods

(96)

(480)

Foreign tax charge on income

413

360

Total current tax credit

(163)

(632)

Deferred tax:



Excess of taxation allowances over depreciation on fixed assets

(58)

(198)

Other

1

132

Tax losses (utilised)/carried forward

(76)

99

Adjustment in respect of prior periods

342

307

Total deferred tax charge

209

340

Tax charge/(credit) on profit on ordinary activities

46

(292)

 

 

'Other' in the current and prior year relates to the reversal of short-term timing differences.

 

b) Factors affecting tax charge

The tax assessed for the period is lower (2018: lower) than the standard rate of corporation tax in the UK, 19% (2018: 19%). Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

 

The standard rate of UK corporation tax will reduce to 17% from 1 April 2020. These proposed changes were substantively enacted when the Finance Bill 2016 received Royal Assent on 15 September 2016, therefore, UK deferred tax liabilities have been recognised at this and prior year balance sheet dates.

 

There were no significant tax reforms impacting the Group in the current year.

 

In the prior period the following significant tax reforms occurred:

 

·     The Tax Cuts and Jobs Act was enacted into US Law. This reduced the Federal corporation tax rate from 35% to 21% from 1 January 2018, leading to a reduced rate in the year ending 31 March 2019 (due to full year impact). Deferred tax liabilities are recognised at 21% at this and prior year balance sheet dates;

·     The Corporate Income Tax Reform Act was enacted into Belgian Law. This reduced the Corporation tax rate from 33% to 29% from 1 January 2018, leading to a reduced rate in the year (due to full year impact), with a further reduction to 25% from 1 January 2020. Deferred tax assets and liabilities are recognised at 25% at this and prior year balance sheet dates;

·     The Finance Bill 2018 was enacted into French Law. This progressively reduces the Corporation tax rate from 33.33% to 25% in 2022, beginning 1 January 2018 with a reduction to 28%, 26.5% from 1 January 2021, finally reducing to 25% from 1 January 2022. This lead to a reduced Corporation tax rate in the year ending 31 March 2019 due to the full year impact of this rate change. Deferred tax assets and liabilities are recognised at 25% at this and prior year balance sheet dates.

 

The charge/(credit) for the year can be reconciled to the profit per the income statement as follows:

 


2019

£000

2018

£000

Profit on ordinary activities before taxation

842

935

Profit on ordinary activities by rate of tax in the UK of 19% (2018: 19%)

160

178

Expenses not deductible for tax purposes

44

97

Income not taxable

(39)

(45)

Additional relief for Research and Development expenditure

(774)

(631)

Foreign profits taxable at different rates

113

110

Losses carried forward

485

213

Losses brought forward utilised

(176)

(128)

Effect of change in tax rate on deferred tax balances

(13)

39

Other temporary differences not recognised

-

48

Adjustment in respect of prior periods

246

(173)

Total tax charge/(credit) at an effective rate of 5.5% (2018: -31.2%)

46

(292)

 

 

4.  Earnings per Ordinary share

Basic earnings per share is calculated by dividing the earnings attributable to holders of Ordinary shares by the weighted average number of Ordinary shares outstanding during the year.

 

For diluted earnings per share, the weighted average number of Ordinary shares in issue is adjusted to assume conversion of all dilutive potential Ordinary shares. The Group has dilutive potential Ordinary shares relating to contingently issuable shares under the Group's share option scheme. At 31 March 2019, the performance criteria for the vesting of certain awards under the option scheme had been met and consequently the shares in question are included in the diluted EPS calculation.

 

The calculations of earnings per share are based on the following profits and numbers of shares.

 


2019

£000

2018

£000

Profit on ordinary activities after tax

796

1,227

 

 

Weighted average number of shares:

No.

No.

For basic earnings per share

29,034,539

29,411,555

Effect of dilutive potential Ordinary shares:



- share options

16,806

26,224

For diluted earnings per share

29,051,345

29,437,779

Basic earnings per share

2.7p

4.2p

Diluted earnings per share

2.7p

4.2p

 

 


2019

£000

2018

£000

Profit on ordinary activities after tax as reported

796

1,227

Exceptional items after tax

(89)

447

Profit on ordinary activities after tax as adjusted

707

1,674

Adjusted basic earnings per share

2.4p

5.7p

Adjusted diluted earnings per share

2.4p

5.7p



 

 

Extract from Annual Report and Financial Statements

The financial information set out above does not constitute the Group's statutory financial statements for the years ended 31 March 2019 or 2018 but is derived from those financial statements. Statutory financial statements for FY2018 have been delivered to the registrar of companies, and those for FY2019 will be delivered in due course. The auditors have reported on those financial statements; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The annual report and financial statements for the year ended 31 March 2019 will be posted to shareholders on 26 June 2019. This final results announcement and results for the year ended 31 March 2019 were approved by the Board of Directors on 18 June 2019 and are audited.

Basis of preparation

The final results announcement has been prepared under historical cost convention on a going concern basis and in accordance with the recognition and measurement principles of International Reporting Standards and IFRIC interpretations as adopted by the EU ("IFRS").

The final results announcement has been prepared on the basis of the same accounting policies as published in the audited financial statements of the Group for the year ended 31 March 2018, with the exception of the accounting policies adopted in the audited financial statements of the Group for the year ended 31 March 2019.

Reclassification on adoption of new standard: IFRS 15 Revenue is effective for periods beginning after 1 January 2018. This has led to the reclassification of certain balances at 1 April 2018 in relation to contract assets and liabilities with customers. The adoption of this standard has no effect on opening shareholder funds.

 

31 March 2018


Before

reclassification

£000

IFRS 15

reclassification

£000

After
reclassification

£000

Assets





Non-current assets





Property, plant and equipment


7,467

-

7,467

Other intangible assets


10,993

-

10,993

Deferred tax assets


377

-

377

Other non-current assets


351

-

351



19,188

-

19,188

Current assets





Inventories


8,378

-

8,378

Contract assets


-

371

371

Trade and other receivables


8,369

(371)

7,998

Income tax receivable


3,073

-

3,073

Cash and cash equivalents


28,533

-

28,533



48,353

-

48,353

Total assets


67,541

-

67,541






Liabilities





Current liabilities





Short-term portion of long-term borrowings


80

-

80

Trade and other payables


6,693

(23)

6,670

Contract liabilities


-

116

116

Income tax payable


58

-

58

Provisions


243

-

243

Government grants


190

(93)

97



7,264

-

7,264

Net current assets


41,089

-

41,089






Non-current liabilities





Long-term portion of long-term borrowings


1,201

-

1,201

Employee benefit obligations


358

-

358

Provisions


750

-

750

Deferred tax liabilities


1,096

-

1,096



3,405

-

3,405

Total liabilities


10,669

-

10,669

Net assets


56,872

-

56,872






Called up share capital


589

-

589

Share premium account


32,345

-

32,345

Other reserves


5,165

-

5,165

Retained earnings


18,773

-

18,773

Equity attributable to owners of the parent


56,872

-

56,872

 

There is a further restatement of the balance sheet as at 1 April 2018 due to the reassessment during the financial year of pension scheme characteristics. Management have concluded that certain characteristics relating to a French collective agreement for leavers and a Belgian Defined Contribution scheme mean that they meet the definition of Defined Benefit schemes under IAS 19. Therefore, £358,000 has been reclassified at 31 March 2018 from Provisions to Employee benefit obligations, with no impact on opening shareholder funds.

Finally, a reclassification due to a reassessment of calculations under IFRIC 4 has been made, to reduce the imputed operating lease income in year ending 31 March 2018 by £1,756,000. This has no impact on reported profit or loss or total revenue.

Annual report

The annual report will be sent to shareholders shortly and will also be available at the registered office of Immunodiagnostic Systems Holdings PLC at: 10 Didcot Way, Boldon Business Park, Boldon, Tyne and Wear NE35 9PD. It will be made available on the Company's website at: www.idsplc.com.

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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Final Results - RNS